Once you’ve decided to buy a home, you’ll be faced with plenty more decisions to make. You’ll have questions of what type of house to buy, in which area and what price range to consider. Next, you’ll need to decide where to obtain financing and what type of loan to secure.
With so many types of mortgages, fluctuating interest rates, mysterious fees and unfamiliar terms, the process can sometimes get overwhelming, especially for first time homebuyers. Even among those who have a general idea of what they can afford, it may be tough to know the actual monthly payment or down payment would be based on the cost of the home. Let’s explore six basic steps toward financing your first home.
Home Financing with Confidence
You don’t have to be a financial expert to buy a house. Just work with a team of trustworthy experts and ask questions until you understand the loan options and associated costs.
1. Learn the process
Ask lots of questions until you have a basic understanding. Use a mortgage glossary and learn the steps to buying a home to get started. The more you educate yourself upfront, the smoother the process should be.
2. Build your own team of advisors
Your home buying team may include a mortgage lender, a real estate agent, a real estate lawyer, an inspector and perhaps your financial advisor. Include your family and friends too – you can learn a great deal from those who have gone through the process.
3. Get pre-qualified or pre-approved
Meet with a trustworthy mortgage lender to get pre-qualified. A mortgage pre-qualification can help you determine how much house you can afford. This will save you a lot of time in your search, and when you find the home you want, you will be financially ready to make an offer.
To make your offer more attractive, you can go one step further and get pre-approved, which is basically a verification of the information you provided to get pre-qualified. Learn more about the difference between pre-qualification and pre-approval.
4. Utilize available tools
Do your own research online and use mortgage tools, such as a mortgage payment calculator and rent vs buy calculator. Work with the numbers and talk with your team until you have a basic understanding of how various options will impact your monthly payments.
5. Explore “what-if” scenarios
Discuss “what-if” scenarios with your lender. What if I found a house that cost $10,000 more? Would I still qualify? What would my payments be? What if the house were $10,000 less? Explore scenarios with varying interest rates and types and terms of loans, such as fixed, variable, conventional or VA. Your lender will be able to recommend the most appropriate loan for you.
6. Build good rapport
If you don’t relate well to the professionals you’re working with, consider going elsewhere. You need advisors who will provide clear, sound advice and answer questions promptly.
If first time homebuyers follow these tips, it will help the process go more smoothly. Education and the right team will go a long way towards becoming a homeowner.